Banks Could See Big Profit Bump from the Proposed Tax Cut
Major bonanza for large banks
Last week, the Republican framework was released for the proposed tax cut. It called for lowering the corporate tax rate from 35% to 20%. If President Trump can push this change through, the largest banks in the country are in for a major bonanza. According to data compiled by Bloomberg, the six largest US banks—JPMorgan (JPM), Bank of America (BAC), Wells Fargo (WFC), Citigroup (C), Goldman Sachs (GS), and Morgan Stanley (MS)—could see their net profit rise by $6.4 billion or 7%.
Interested in BAC? Don't miss the next report.
Receive e-mail alerts for new research on BAC
Banks (XLF) will likely benefit the most compared to other industries because they usually have very few deductions. The six largest banks paid an average of 26% in federal taxes last year, which was almost twice what nonfinancial companies paid. Banks also might not be required to follow damaging provisions like the elimination of the deduction for mortgage interest.
Jamie Dimon, JPMorgan Chase’s CEO, welcomed the proposal. He said that it’s an encouraging step forward. He thinks that the plan should be put into action with urgency.
Easier capital rules for small banks in the offing
The Fed, FDIC, and Office of the Comptroller of the Currency supported the move to issue new rules aimed at easing regulations on capital requirements for smaller banks. The proposal would apply to banks with less than $250 billion in total assets and $10 billion in foreign exposure. The proposed rules are part of a broader effort to simplify financial institutions’ operations. Small banks complained about the stringent regulatory environment following the financial crisis. The environment makes it difficult for them to comply and compete.